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Kiewit: An Uncommon Story by Jeffrey Rodengen

Summary

Kiewit Brothers Company was established in 1884 by Peter Kiewit and his brother Andrew but the main growth phase was under Peter Kiewit Jr. Growing from its roots of basic commercial building construction, after 125+ years it is now also in the transportation, mining, water resources, power, oil and gas, underground, electrical, and marine market segments, routinely completing projects for its clients, some in excess of a billion dollars, on budget and ahead of schedule. It is one of the most highly regarded contracting companies in the world because it remains faithful to the corporate goal set in 1946 by the late Peter Kiewit: To be the Best Contracting Organization on the Earth.

Key Takeaways

Intro & Overview

A system of broad-based employee ownership began under the leadership of the founder’s son, also named Peter. Kiewit is now owned by more than 2,000 employee-shareholders and has become a model for employee ownership. This has made the employees treat the firm as their own and has created significant security and wealth for these employee-owners

“Peter Kiewit didn’t just build buildings – he built confidence and integrity. He built leadership. I’m convinced that Kiewit leadership benefited from a superior corporate ethic and a unique mentoring culture.” – Warren Buffett

At Kiewit, you not only have to excel in a wide range of areas of construction and engineering, but you also have to identify, mentor, and prepare your own replacement, your successor.

“The engineering and construction business has an enormous graveyard of competitors that never made the grade. If you set out to replicate the Kiewit Company, you could put as much capital into the business as it has. You could move into corporate quarters that rival Kiewit’s. You could even buy all its equipment and replicate its organizational structure. But, you would not be able to build a culture like Kiewit’s. That culture is the result of the vision of an extraordinary man, carried on and moved forward by extraordinary people. You could canvass the world, recruiting the top picks from Stanford, Harvard, you name it, and you would never replicate the magic and success that is the culture of the Kiewit Company. I am so very proud to be its neighbor.” – Warren Buffett

Building a Foundation: 1884 – 1914

“There is no progress without risk. You can’t hope to develop your maximum potential without taking some risks.” – Peter Kiewit

Peter’s father, Peter, founded the company but it was the son who moved it forward. He didn’t care if the company was the biggest, but he wanted it to be the best. His legacy of hard work, moral integrity, employee ownership, safety, training, and quality endures today.

Early years were difficult as there was much competition in Omaha. When the owner of a large project ran out of money, Kiewit was creative and moved the family into one half of the building, getting free rent and allowing the owner to save enough money to finish the project

At 6, Peter got his first paper route along with his teenage brother, Ralph. Their mother, Anna, would wake them up at 3am to give them breakfast before their route started

The father would include the whole family on the plans and discuss the construction business with them. He would walk his children through what he was doing and why. He was a great teacher to his children. Peter’s mother taught him hard work and resilience. Peter was often worried that if not cautious, companies could allow themselves to get fat, lazy and complacent, and lose out.

Becoming a Leader: 1915-1930

“Although Peter rose to unbelievable heights, he never lost the sense of being a working man. Instead, he reached out to all who would join him and gave them the capacity to help others.” – Rev. Matthew Creighton

Peter created a cost-monitoring system that allowed the company to gage its weekly performance on each job. Peter asked the foremen to regularly submit a record of their actual costs. He then compared the actual costs to the original estimates, allowing him to gage the company’s profits accurately.

“Pete had a fantastic capacity to organize the details. He was far better than I was. If he saw something wrong, he took care of it right away, whether a foreman wasn’t performing up to standard or some other change.” – Ralph Kiewit

When Peter made up his mind he was tough. He would sledgehammer his way through the opposition

Peter eventually acquired 25% of the business and created a new company called Peter Kiewit Sons’, Co. in 1931

Surviving the Depression: 1931-1938

“A business dominated by one man, who makes all the decisions, who is reluctant to deputize responsibility lest his assistants make mistakes, lacks the elements of a permanent organization because it denies men the chance to grow and be ready for the larger responsibilities, which eventually someone must assume.” – Peter Kiewit

Peter’s phlebitis was in fact helpful to him and the company long-term as it forced him to hand over responsibility to other men

“I’d like to remind you that the foundation of our company’s growth and expansion started in the early 1930’s when contracting opportunities in all types of work were minimal compared to what they are today. Intelligent, hard-hitting, no-nonsense policies and efforts separated us from our competitors then – and will in the future if we follow them enthusiastically.” – Peter Kiewit

In 1931, the Great Depression was in full swing. Although many companies were cutting back on their workforce, Peter added to his employee base and took on new types of projects. Diving into highway work ensured the company’s survival during the Great Depression and propelled it forward

“From the beginning I realized I was working for a man with great integrity, competitive drive, rare business and financial talent, and a gift for organizing and inspiring men.” – Homer Scott

Early on Peter sold stock to valuable employees as a means for each worker to have a stake in the company’s success, with the understanding that they would sell their stock back should they leave the company. “One of the reasons our results are better than our competitors is that all of our stock is owned by employees – people who are actively engaged in our business. Each one is, in fact, a part owner of our company and is, in a sense, working for himself. Certainly this should, and I believe it does, provide a definite incentive to our employees and a corresponding benefit to the company.

When it came to making bids for business, Peter told Armstrong, “I never want you to do anything but walk in the front door, plunk down your bid, and, if you aren’t the low bidder, walk out. Never employ that there might be something in it for someone if you get the bid. All of our street and roadwork will be on a hard-money basis, period.”

“As I see it, personal success is being the best you can be. Often, the key to realizing your full potential is the willingness, and the courage, to take a calculated risk. I don’t mean a reckless, impulsive risk, but one in which the prize for success is high and the penalty for failure is not catastrophic. Even failure often contributes to your growth. Improvement is seldom made without reaching beyond your abilities and trying to do something you have never done before. Sometimes the effort fails, but it is the reaching, the striving, the divine discontent that generates greater strength and knowledge.” – Peter Kiewit

In 1935, the company did not realize a profit. It did, however expand its equipment holdings, and, as Peter said, “More important, we hired, trained, and developed a number of able people – many of whom became valuable employees, officers of the company, and major shareholders.”

Enlisting in the War Effort: 1939-1945

Peter did not like yes-men, he wanted his men’s ideas

Had great leadership abilities and temperament. During the Fort Lewis project, he told his men, “Just remember, a big job is no more than a lot of little jobs put together.” Peter, more than anyone, rolled up his sleeves and took action. He became familiar with everything that was going on, evaluating the performance of each supervisor, setting up incentive programs, recognizing outstanding performance, and patterning the rest of the operations after those who were getting the job done. He weeded out poor performers; he changed the entire feel of the job. Everyone knew what was expected of him. PKS earned a reliable reputation from the US government and received numerous contracts after the Fort Lewis project

Reflecting on his desire to maintain a low profile, Peter quoted his father, by saying “When you harvest wheat, the tallest stalks – those that stick up their heads – are the ones that get the scythe.”

As a leader, Peter stood behind his men when he believed they were right. Even when it was the US government he stood up against

Peter had read about the building of a similar dock which needed very deep piling in a magazine. Using the article for reference, Peter hired several people who had worked on the previous dock. Dale Clark commented, “That was typical of Pete. He had the ability to prepare and to hire people who could prepare.”

Peter lost 75 pounds from his heaviest and would later tell workers, “Good health is your most valuable asset, because without good health, little else has any significant meaning.”

Branching Out in Peacetime: 1946-1956

As the pressure of the war effort tapered off, Peter recognized that the company would be entering a period where, once again, highway and commercial building work would dominate its business. Another key trend was the growth and development of the western states and the western states needed water

Key Kiewit philosophy:

We improve as we learn

How to secure work at the right price

How to build work at the lowest cost

How to staff our work with the right people

Peter divorced his wife, Mary, of 28 years and 2 years later married Evelyn

Peter always sought to make a point through action rather than words. He was always looking for a way to improve the company’s operations, a reflection of the personal pride he took in PKS’ work and his desire to train young engineers by example

In all operations, safety has always played a crucial rule. Peter’s motto was “Think Safety,” and he became a leader in the industry for safety performance

The PKS annual meeting began in 1944 and its purpose was to review the previous year’s operations, determine the causes for the satisfactory and unsatisfactory results, and improve the ability to estimate and build work

It has always been our policy to fill vacancies by advancing qualified employees whenever possible. I’m happy to say that the number of occasions when we have had to bring people in from the outside for a particular job is negligible, and this should occur even less frequently in the future because of the fact that we are making headway in developing more and better employees.

Growing at Home and Abroad: 1957 – 1979

“I believe that a company cannot stand still for long – either it goes ahead or slides back.” – Peter Kiewit

A key driver of the company’s growth during this period was the development of the Interstate Highway System

Bob Wilson was named President in 1969 after Peter had led the company for nearly 40 years but, as Director Lee Rowe joked, “Bob had to arm wrestle Peter for the job each morning for the first several years.”

On his death bed, Peter told his third wife, “I never dreamed that I would be able to accomplish so much in my life for myself and for others.”

A plan put in place before Peter’s death called for PKS to be purchased and solely owned by employees

Peter had an uncanny ability to listen to those who had problems and at the end of the discussion to put his finger directly on the solution

Transitions in Leadership: 1979 – Present

“Before you can go on to a position of greater responsibility, someone must be trained to do your job, unless the job you are doing is not an essential one. If any of you fellows wants to admit that your job is not essential, you do not need to do anything about trying to see that anyone else is trained for your job.” – Peter Kiewit

Peter looked two successors ahead. He appointed Bob Wilson to immediately succeed him but his foresight in training Walter Scott Jr., 11 years Bob’s junior, came to bear when Wilson experienced heart issues and died soon after Peter

Walter Scott made several major acquisitions, the biggest being Continental Group in a deal for $3.5b. At the time it was the largest public company to be taken private

Scott always understood that if he picked talented people and gave them room to run, they would make the company successful

In order to maintain liquidity for repurchasing stock from retiring or otherwise departing employees, Scott created two tracking stocks. Kiewit Diversified eventually spun off and became Level 3 Communications and Stinson remained head of the construction, mining and materials business

Design-build was another area that Stinson built up. Prior to 1990 it made up less than 1% of the company’s business but after that, at times, has accounted for half of Kiewit revenues

The power market also became a major portion of Kiewit’s focus during Stinson’s service

The Board knows what the questions are and oftentimes know the answers and certainly don’t need to spend a lot of time on operational issues, which some boards do. This board has a good balance between reflecting on results and expectations. There’s a good amount of time spent on “how are we doing ” and on “what’s the backlog?” as well as the kind of projects we are working on, where we are making investments in new fields, and how to create future opportunities

Board member Mogens Bay depicted Kiewit’s employee loyalty during the company’s 2003 Annual Meeting. He noted that Caterpillar provided the same construction equipment to every competitor as it did Kiewit, and there was no advantage from an equipment standpoint. The advantage that Bay found in Kiewit, however, was present in the employees’ collective experience, their passion for their work, and the company’s culture of employee ownership.

Kiewit has long been recognized as without equal in their focus on the training and development of people throughout the organization

In 2000, Bruce Grewcock decided to try to separate Kiewit from the competition through quality, adopting the motto “Right the First Time”

Peter continually admonished his employees to train and mentor a successor. Taking that principle to heart has been a key to ensuring that the company always has employees ready to take up the mantle of leadership

Investing in New Ventures

The 1980s saw a period of diversification for Kiewit as it made significant investments in ventures outside its core business including MAPCO, CalEnergy, Continental Can, Level 3, Metropolitan Fiber Systems – eventually leading to a reorganization into Kiewit Construction Group and Kiewit Diversified

The difficulty with acquisitions is that every company has its own history, its own traditions, and its own unique culture. A healthy corporate culture can be a magic intangible that makes the difference between a winner and a loser but it is hard to instill that in another company

Kiewit invested in, grew and spun off several major companies in this time

Building Places to Live, Work, and Play

Kiewit diversified geographically as well as their construction focus – doing residence halls, hotels, offices and business parks

From the ’80s to the 2000s, transportation was the largest portion of Kiewit’s business – more than $37b in contract revenue

Design build grew from less than 1% of business prior to 1990 to as much as half of Kiewit’s revenues by the 2000s. Clients were increasingly interested in having a single point of responsibility for all aspects of project delivery

Titles are left at the door and we all do what it takes to get the job done

Kiewit has constructed more lane miles of interstate, highways and bridges than any other contractor and the company’s capabilities are reinforced by the largest privately owned fleet of construction equipment in North America, which allows it to mobilize resources rapidly for any size project

Clear and Abundant Water

“The number one principle I follow is to treat people with respect. The second is to work closely with them to emphasize their strengths and to support them where they need training or support.” – Richard Geary

Kiewit has built some of the most significant earth, rock-fill and roller compacted dams in the country, as well as reservoirs, transmission through pipelines and tunnels and numerous water and wastewater treatment facilities

Meeting Society’s Needs for Energy

Kiewit has grown their energy business drastically over the decades, focusing on geothermal, hydro, nuclear, coal, waste-to-energy, coal, gas and more.

Developing Our Natural Resources

Reclamation efforts have taken a front seat after a mine has run its course

The Formula for Success

“The “four legs of the table,” if you will, are the way we’re owned, the way we’re organized, the way we focus on the basics, and the way we focus on people.” – Ken Stinson

The test of a strong cultural statement is its longevity. The imperative to be the best contractor on earth has survived virtually unchanged for more than six decades and is deeply embedded in the corporate culture

Stock ownership is limited to active employees and they must sell it back to the company when they leave or retire. The basic book value formula for determining the year-end stock price has not changed since the late 1940s. Individuals purchasing stock do so at the formula price; there are no stock options or discount programs. When stock is sold back to the company, it is sold at the then-current formula price. For a stock program like Kiewit’s to be successful, annual growth in the stock value must be consistently better than other investments. Since the inception of the employee-ownership program, the company has not experienced a losing year. The average annual total return on Kiewit stock has significantly outperformed the S&P 500 for a long period of time.

The company strives to ensure that each employee’s stock ownership is in line with his or her level of responsibility and performance and typically have 3-5 years of Kiewit experience before they are first offered the opportunity to purchase stock

At the time of Peter’s death in 1979, there were 808 employee-owners. The wisdom of his belief in the importance of employee ownership to the success and survival of the company was validated upon his death. There were no issues of ownership transition. The owners were the employees, and Peter’s ownership interests were purchased by the company. There were no issues of leadership succession. The leaders were in place, were major stock holders, and had been groomed for their position.

While district managers basically function as if they were running their own construction company, Kiewit’s approach to decentralization provides for certain business functions to be centralized at corporate headquarters in Omaha. These include tax, finance, legal, insurance, and other vital support functions

Competition between districts is fierce. Each district manager begins the New Year with the resolve to “sit at the head table” at the next annual meeting. Because Kiewit is not dependent on any one single market, it has allowed districts to survive downturns without having to lay off personnel or accept unprofitable work. Another important advantage of a decentralized strategy is the ability for two or more districts to form an internal joint venture. Often, the best joint venture partner for large complex jobs is another Kiewit district. The districts share in the job results based on their level of participation

Essentials of successful contracting: getting work at the right price, building work at the lowest cost, taking care of our assets

Another significant element of Kiewit’s culture has been a focus on the basics, often referred to as “the fundamentals.” Like striving to be the best contractor on earth, the fundamentals are easy to understand but difficult to execute well. “The one interesting thing about the fundamentals for most businesses is that they’re not a secret. What Sam Walton did with Wal-Mart and what Peter did with our company is so basic that to the untrained eye, it appears anyone could have done it. What made them different is that they understood the importance of execution of the fundamentals – and the importance of having talented and motivated people.

Taking care of assets was originally intended to mean conserving working capital and taking proper care of construction equipment. Peter would later expand that meaning, citing a contractor’s reputation as a valuable asset. However, through the years, he gave the greatest emphasis to people and their talents as the company’s most valuable asset.

Kiewit is also admired for its organized and methodical care of construction equipment. The company has the largest privately owned construction fleet in North America. Its 17,000 units have a replacement value in excess of $2b

Kiewit has long prided itself on the way it focuses on people. This has led to employee loyalty unusual for the construction industry, with employees often staying with the company for decades-long careers. Among the many ways the focus on people is expressed is in its safety program and its comprehensive training and development programs. “I don’t care if you’re a laborer or a general foreman, if you see something wrong with a task you’re doing, or you have a question, you stop. You’re not going to get terminated. You’re not going to get reprimanded. If it’s a safety concern, stop.”

All Kiewit managers willingly accept training their people, both on and off projects, as one of their most important responsibilities. All managers are expected to mentor new employees and employees receive constant feedback and coaching

Kiewit has never formally published a list of core values but the most commonly voiced are: integrity, broad-based employee ownership, caring for employees, development and mentoring of employees, quality, and continuous improvement

From the beginning, Peter insisted that the company be known for its integrity and ethical business practices – a company with whom owners, suppliers, employees, subcontractors, and others would be proud to do business

Kiewit’s framework for quality management focuses efforts on self-performed work, subcontractor work, supplier controls, and fostering owner involvement. Kiewit crews are trained to build work to the project requirements and meet or exceed the owner’s expectations, perform work right the first time, and monitor performance against requirements to ensure quality is always improving. Striving for excellence in quality has produced an additional benefit that probably should have been anticipated. The planning, organization, and management controls it takes to ensure quality at every step has helped instill quality into other aspects of our business. The disciplines involved in striving for quality has made us better contractors and a better company.

The focus on continuous improvement can be summed up by Peter’s phrase: “pleased, but not satisfied.” Continuous improvement also requires learning from mistakes and as a company, they’re tolerant. “We’re quite tolerant of mistakes, and we’re very tolerant of people who make mistakes. Just don’t go out and make the same mistakes all the time.”

In the post-World War II era, Kiewit has clearly been the most successful company in its industry. Its unparalleled record of sustained success is rooted in employee ownership, a decentralized organization, an unrelenting emphasis on the basics, and a strong corporate culture based on developing and valuing people. It’s a formula for success widely admired but difficult to replicate.

What I got out of it

Broad-based employee ownership, followed by giving away ownership of decisions and responsibilities to those who bear them and best know (typically those on the ground, not in the offices), focus on training and treating employees right, continuous improvement, and, above all else, integrity. Finding and training your own successor also stood out